Innovation and Creative Destruction

Fred Wilson has a magnificent post up this morning from Berlin titled Bits Of Destruction. In it, he nails a critical point about innovation.

“This downturn will be marked in history as the time where many of the business models built in the industrial era finally collapsed as a result of being undermined by the information age. Its creative destruction at work. It’s painful and many jobs will be lost permanently. But let’s also remember that its inevitable and we can’t fight it. Technology and information forces are unstoppable and they will reshape the world as we know it regardless of whether or not we want them to.”

Go read the whole article – he gives several real examples (publishing, banking, retailing, and auto). Then come back here to finish up and hear my punch line.

I’ve been living and working in and around innovation and entrepreneurship my entire adult life, starting with my first company and the research I did as a masters and Ph.D. student at MIT Sloan School under Eric von Hippel. My life experiences, along with all the history I’ve studied, come back to the same notion.

Innovation is a continual process of creative destruction of the norm.

People talk about economic cycles and waves of innovation. These are intersecting forces that drive each other. But innovation is not just limited to business, technology, and science – it impacts all of our existence on this planet. Think about innovation in religion, philosophy, art, architecture, social structures, forms of government, urban planning, economic theory, expression of human sexuality – whatever you want.

In the late 1990’s, there were a bunch of people, myself (and Fred) included, who believed that the Internet would have a dramatic impact on the way our world works and we live our lives. After the Internet bubble burst in 2001, there were a lot of people in “the established business world” who said something akin to “see – that was just a fad.” Anyone who has clung to the idea that the Internet was a fad is in a world of hurt right now, as the premise, functions, and implications of the Internet revolution of the late 1990’s becomes deeply instantiated across the global economy.

The next 20 years are going to be awesome. We inevitably will have lots of challenges and pain along the way as the waves of creative destruction pummel existing norms. But that’s just the way innovation works – and has always worked.

I think the biggest indicator of future success — or at least thriving in this information driven era — will be whether a company chooses to be a member of the community or tries to figure out how to exploit it. If your first question is "how do make money off this Internet stuff?" rather than simply "how are we best a part of this community?" then you're missing the boat. It's going to be a long-term game.

I think the biggest indicator of future success — or at least thriving in this information driven era — will be if a company chooses to be a member of the community or tries to figure out how to exploit it. If your first question is "how do make money off this Internet stuff?" rather than simply "how are we best a part of this community?" then you're missing the boat. It's going to be a long-term game.

I think the biggest indicator of future success — or at least thriving in this information driven era — will be if a company chooses to be a member of the community or tries to figure out how to exploit it. If your first question is "how do make money off this Internet stuff?" rather than simply "how are we best a part of this community?" then you're missing the boat. It's going to be a long-term game.

I'm not advocating the startup business model of 1. get eyeballs 2. ??? 3. profit, but rather a more fundamental positioning of what's valuable to an organization and not trying to simply graft old ideas onto new ideas.

I really enjoyed this post. I feel that there is more to innovation than just "creative destruction" however, there are inherent human and non-human drivers that push certain technologies and innovations forward. There are cultural and social dynamics as well that drive innovation. "Creative destruction" imho assumes that innovation in most cases happens in the vacuum of our minds and somehow manifests itself creatively… but often times its by accident and happens as a result of a myriad of driving forces… those forces are particularly interesting and not just an exercise in human creativity sometimes.

Well said. I agree that “creative destruction” is merely one part of the innovation dynamic. However, when everyone is in the middle of a “creative destruction” cycle, it’s easy to forget the value of it!

This perspective is interesting to read, because for those of us who literally grew up on the Internet, the "established business models" just don't make sense. They feel counter-intuitive to what we grew up on (the Internet).

It's as if there are 3 segments of people.

1. Those who only know old business.
2. Those who knew old business but were smart enough to transition into new online life
3. Those who only grew up knowing online

As Segment 1 ages, I think the pace of adoption of Internet models will only accelerate.

Harald Pocher

It's time to rediscover Paul Feyerabends "Against Method".
Interesting enough that his name wasn't mentioned till now while talking all the time about "creative destruction".

Hey Brad….the other element that is driving this coming wave of creative destruction is that many of the technologies (and I use the term VERY broadly) that we currently rely on – particularly those underpin the infrastructure of our economy – are really hitting the extreme asymptotic part of the cost vs capability/functionality curve. Either you keep pushing up the curve and spend more and more for that next n-th of capability (and bankrupt yourself) or someone restarts the cost/capability curve with innovation (creative destruction) – think space launch, semiconductors, autos, hydrocarbon based energy, aircraft. The other part that's scary / represents opportunity about the next decade is that we are hitting block obsolescence on much of our national infrastructure that was put in at the beginning of the Cold War (highways, bridges, schools, etc) – all getting to be 50 years old – either spend a fortune replacing or get very creative with technology/new business models/new social compacts to get them in place.

I agree with Pierre and Brad. Over the past 15 years we have put in a new infrastructure that rivals the Cold War era projects in importance. The Internet has achieved a level of maturity and reach to now be a platform for innovation (rather than an innovation itself.) For me, a proof point is this: my seven year old daughter routinely sends emails to my 80 year old father with neither requiring any assistance – its just mail, (so much for stamps and envelopes, et. al.).

Now, we have an event that, while throwing up some barriers in the short term, will open up new fields thus making innovation broader as well as even more rapid.

To me, America is like a tech company riding a successful product wave. It has surfed that success wave almost to shore. Does it kick out and paddle back through the waves (where it will get munched a few times) and catch the next wave? Or, does it crash into shore? I firmly believe it will kick out and successfully paddle out.

I agree with Pierre and Brad. Over the past 15 years we have put in a new infrastructure that rivals the Cold War era projects in importance. The Internet has achieved a level of maturity and reach to now be a platform for innovation (rather than an innovation itself.) For me, a proof point is this: my seven year old daughter routinely sends emails to my 80 year old father with neither requiring any assistance â its just mail, (so much for stamps and envelopes, et. al.).

Markets are going through major shifts related to advances in digital solutions and global access to low-cost resources. Those companies that will thrive are those that will create new solutions which adjust to these shifted markets. Just because a company survived last year and has a few bucks does not mean it will succeed in 2009 and onward. It requires innovation to deal with these major changes, and only those companies that innovate will create returns allowing them to emerge as strong, viable competitors. Read more at http://www.ThePhoenixPrinciple.com